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The Sins Of Italy's `Moral Capital'


International Business

THE SINS OF ITALY'S `MORAL CAPITAL'

Far from the Mafia strongholds of Sicily and the Machiavellian politics of Rome, the Italian financial and industrial powerhouse of Milan has stood tall as the country's "moral capital." That was before Mario Chiesa, head of the city's largest publicly funded nursing homes, was arrested in a sting operation last February as he tried to pocket a $5,600 bribe. When investigators discovered more than $14 million in Italian and Swiss bank accounts controlled by him and his parents, Chiesa started to talk. Following his leads, investigators uncovered evidence in early May of at least $130 million in bribes and commissions paid to Milan politicians.

And that, say prosecutors, may be just the beginning. With Operation Clean Hands two months old, already 20 politicians and businessmen have been arrested, including a former top executive of Fiat-controlled Cogefar Impresit, Italy's largest contractor. The investigators believe that commissions as high as 20% have been paid systematically to politicians on nearly every large public works project in Milan, from hospital and stadium construction to the city's sparkling new Metropolitan subway. Over the last decade, many such commissions were recycled through as many as 70 banks based in the nearby Swiss city of Lugano. "The extent of the corruption that we're beginning to see is simply beyond belief," says Stefano Micossi, chief economist of Confindustria, the powerful employers' federation.

As in the recent wave of scandals that swept Japan's leadership, Clean Hands has laid bare cozy links among politicians, businessmen, and bureaucrats. In fact, Italy and Japan have a number of things in common. Both have highly protected local markets, encouraging collusion between business and politicians. Like the Mafia in Southern Italy, the Japanese Yakuza hold sway over the periphery of business. And in Italy, as in Japan, there is no real opposition to the major political parties, nor any tradition of housecleaning at the top.

But unlike Japan, the Italian party system is fast breaking down. In April elections, regional protest groups gave the Christian Democrat and Socialist politicians an unprecedented drubbing. Prosecutors say this makes it easier to pursue such politically sensitive investigations as Clean Hands.

FRONTAL BLOW. The 150 business executives interrogated so far in the Clean Hands investigation have been more explicit about bribe-paying than in any other corruption case in postwar Italy. Already, the politician who had been expected to head Italy's new government, Socialist Party boss Bettino Craxi, is fighting for his political life. No charges have been brought against Craxi, but his brother-in-law and most trusted ally, a former Milan mayor, is under investigation on corruption charges. So is the current Minister of Tourism, another Craxi intimate. Both men deny wrongdoing, but Italy's Socialists have been dealt a frontal blow.

Clean Hands has revealed in detail how big contractors would agree beforehand on who would win a deal, such as the $110 million project to modernize Milan's San Siro soccer stadium in time for the 1990 World Cup. Similarly rigged bidding occurred on Milan's Metro, where work first estimated at $260 million ballooned to $1.7 billion.

As a key member of a united Europe, Italy can no longer afford such practices. The annual cost of bribes and kick-backs is now more than $8 billion, by one estimate. Stanching that flow would mean ending the stranglehold by political parties on more than 3.5 million public-sector jobs and their control over public works and huge swaths of state-owned industry and banking. But history shows that reform doesn't come easily in Italy.John Rossant in Rome


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